Umaire Effendi
Nov 13, 2014

Do online discounts discount brand equity?

While Suman Srivastava underlines that we must stop demarcating channels as online and offline, Nalin Khanna argues that brands are bound to lose, when discounted. Umaire Effendi reports

Do online discounts discount brand equity?
Are discounts the primary driver for e-purchases?
Suman Srivastava, Founder,  Marketing Unplugged (SS): It seems that way but isn’t necessarily so. E-commerce websites are just another form of retail. And just as retail isn’t only about price but also the experience, the decor, loyalty programmes and all the rest of it, similarly there is more to e-commerce then just discounts. Unfortunately too much emphasis has gone into discounts of late and therefore the perception is that e-commerce is equal to discounts. In fact I argue that the reason Flipkart does so well is because of the cash-on-delivery and quick delivery.
Nalin Khanna, Group CEO, Vertebrand (NK): I think fundamentally that is what the problem is today. One when you look at any brand that has been discounted, first of all, the brand has lost its sheen because if I’ve bought you for a low price, that means I’ve not bought you for what you are. So you have changed the reason for me to buy you to a reason that is far more replaceable by competition. A brand is first of all a differentiation between one to the other in any category. Fundamentally, why do we build brands? We do it for two reasons, to create a differentiation, to earn premium. A brand should be able to generate profits. If it’s unable to do that, I should be able to build on the image. So image-wise also I’ve made my product a discounted product.  The impact a Flipkart has gotten after the big billion sale is more negative than positive. If you have good brand value, why should you go around apologising? You should be out celebrating.  The brand is not about just getting the numbers in. This is a very myopic way of looking at it. Once you get labelled as cheap, there is nothing you can do to change that perception.  Now that Flipkart has become a discounted platform, no one will purchase products when they are being sold at regular price. There are always new discount players emerging in the market.
Does brand choice (product brands, not e-com brands) get compromised in e-commerce, given heavy discounts on offer?
SS: Brands often have an uneasy co-existence with retail. There’s a tug of war between the product brand and the retail brand. These days the retail brands are winning. Think about men’s shirts. Consumers tend to choose the retail brand (e.g. Shoppers Stop) rather than the product brand. Brand marketers need to strengthen their brands anyway. If the product brand is strong then it is less liable to get damaged by retail tactics like the deep discounts.
NK: Eventually it will happen. Today they are not finding it difficult. Brands today are looking at it from the perspective that if a Flipkart gives me a discount, I can get my net sales. But it will hurt when you realise that your brick and mortar is not there tomorrow and you cannot offer a customer experience. So once that hurting starts to happen, you will have to bring back the brick and mortar by doing what a Sony does today, where people don’t buy but only experience. As a customer, you want to touch, feel the product before you order. The products that are doing far better in the space of internet are books or branded products where choice isn’t that important and price is the reason for you to choose that platform. Flipkart is a platform or a virtual marketplace. So you are choosing Flipkart over an Amazon because he’s offering you higher discounts and not because it is a better experience.
There used to be a brand of detergents. All their life, they provided customers with a free bucket at the time of purchase. The months in which they did not provide the said bucket, their brand would not sell.  Today one of the largest brands in detergents is Ghadi out of Kanpur. They have discounted the product over other brands but they do not give discounts on the MRP. It’s positioned as a discounted brand on others, that’s their price point.
Is this more pronounced in some categories? Which are they?
SS: I don’t think the problem is more acute in individual categories. The differentiator is the strength of the brand. Some categories have weak brands and so appear more susceptible.
NK: In my opinion, it comes to mostly branded products . I think the more pronounced categories we are talking about are coming from smartphones and gets extended to books and CDs, where the product purchased is sealed when delivered. It is getting into some product categories like shoes and others, but there has been a certain amount of backlash as fitment has been an issue. Till a time when everyone could fit into standard sizes like it happens in Europe, those categories may not work here.
Is it more of a challenge for a brand to stand out online without discounts? And even with discounts?
SS: Wrong question. The challenge is to be a strong brand. Unfortunately, too many brands focus just on the retailer and not enough on brand values. Hence they are at the mercy of the retailer and appear damaged when the retailer discounts them. I think we have to stop thinking of online and off-line. We have to think of brand strength and retail strength. That will determine whether the brand is affected or not.
NK: First of all, brands do not have a strategy of online versus offline. I think, brands are getting confused themselves. If you go back to the original thinking, there are always two prices which are working in the market. One works in the space of hypermarkets and the other is if for mom and pop shops. Now, if you are running discounts and this discount is given only to one type of seller and not the other, you are bound to get impacted. If and when that happens and the competition starts offering similar products, if I’m not a strong brand, I’ll be replaced.
Can a brand have a dual life - discounted avatar online and another in stores?
SS: No, increasingly consumers are not going to differentiate between online and off-line. They will just see it as another form of retail. The brand will have to be consistent across all retail formats.
NK: According to me, brands have to first sit down and strategise. As discussed in the first question, discounting is going to hurt a brand and if they blindly keep on doing this they will lose in the long term. Customers will end up going back with higher discounts, but will be dissatisfied and disloyal customers. Actually in the end the customer loses, if the brand starts losing money. If it stops investing in R&D, if it stops investing in better product.  As a company you have to have a complete strategy. For example, if you look at Nestle and it’s food service product Maggi ketchup. It will be packed differently for personal use and differently for restaurant business. If people do not find ways to differentiate their product, in the long term your brands will be competing against each other. How can you keep doing a losing business? If you lose in brick and mortar, you’ll have to become an online player and offer discounts. In that case you can’t offer a customer experience and will lose out on brand imagery. Then you would have to open an experience store which will drive up the costs and you will not be able to offer discounts. So we come back to square one. Until technology becomes so huge that it gets users to think that they don’t need to see a physical product, it is going to be tough. 
Does the role of advertising and communication get discounted with discounts?
SS: Advertising and communication is one main way of building a brand. We have to focus on brands getting discounted not just on whether advertising gets discounted.
NK: It does. Please remember. People buy you only for two reasons, either you are discounted or you are differentiated. So if, you go the low price route the differentiation will start vanishing.  There is what is called a ‘sweet and sour’ cycle. You can shave the meat till the bone after which you have nowhere to go. There is a limit to cost cutting and discounting in a product. Look at what is happening to Samsung, they are not getting hit by only an Apple, they are getting hit by all local brands because Android is something everyone is able to use now, so the differentiation is gone. This is exactly what happened to Nokia and Blackberry as well. Apple, according to me will survive longer than Samsung if they do not change their operating system.
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